Written by Cristina Arbon and Baxter Hernandez, Mana Impact
A Sea of Concerns
The Philippines is an archipelago with more than 7,000 islands—a land with enigmatic beauty and diversity. From the verdant rice terraces of Ifugao to the majestic peaks of Mount Apo, and from the dense rainforests of Palawan Island to the unique wildlife of the Sierra Madre Mountain range, the Philippines’ various landscapes are a testament to the country’s rich terrestrial biodiversity. The country also boasts an incredibly diverse marine ecosystem and is considered the global center of marine biodiversity due to its abundance of corals and diverse marine habitats. It has a higher concentration of species per unit area than anywhere else in the Coral Triangle region of the Western Pacific Ocean.[1]
Despite its natural endowment, the country faces significant land degradation due to deforestation, soil erosion, and unsustainable agricultural practices. Human activities, such as logging, mining, and corporate plantations, have drastically reduced the forest cover in the Philippines. As of 2015, the country’s forest area stands at just 23.3% of its total land area (~7 million hectares), far below the ecologically healthy level of 54% as recommended by the Forest Management Bureau (FMB) of the Department of Environment and Natural Resources (DENR). Similarly, the nation’s marine biodiversity is threatened by unsustainable fishing practices, rising sea temperatures, and plastic waste. The Philippines ranks among the top three producers of plastic waste globally, generating 2.15mn tons of plastic waste annually.
With all these challenges, the Philippines faces a delicate balance between nurturing its biodiversity-rich ecosystems and ensuring food security and livelihoods for its growing population. While the Philippine government has responded with a multifaceted approach that includes policy reforms, strategic investments, and community engagement—such as the Amended Philippines Fisheries Code (R.A. 10654) [2], the Extended Producer Responsibility Act (EPRA) [3], and partnerships with the United Nations Development Programme (UNDP) [4] and the Blue Carbon Partnership of the World Economic Forum (WEF) [5]—there remains a crucial role for impact investors and philanthropists to complement and accelerate these efforts.
The Nascent Impact Investment Ecosystem of the Philippines
Although the Philippines ranks as the second largest impact investing market in Southeast Asia by number of deals between 2020 and 2022 according to the Investing in Women Initiative, the market is still quite nascent compared to other regions. In fact, while the average ticket size of deals done by Private Impact Investors (PII) in the country was US$370K in the same time period, a significant number of the deals had a ticket size below US$100K, illustrating a focus on seed and pre-seed stage companies.[6] Additionally, an initial observation is that impact investments in the country tend to prioritize social impact models and providing financial access to underserved communities.
Impact Investing Trends in the Philippines
Source: Investing in Women Factsheet, June 2023
The impact investing landscape of the country comprises a relatively small but dynamic community, including social enterprise incubators, an angel network, and several impact investors, both local and international. A prominent name in the impact investment space is Villgro Philippines, an early-stage social enterprise incubator known for running multiple incubator programs that address the need for social impact in local communities. Villgro Philippines has also recently partnered with Xchange, another prominent social enterprise incubator in the country, to form the Impact Pioneers Network, the country’s first angel network dedicated to helping impact investors and founders.
The following table is an overview of some of the key players in the impact eco-system based in the Philippines.
Historically, impact investment focus areas in the Philippines have gravitated toward social enterprises, which have achieved significant successes in the country. Notable examples include Rags2Riches, a fashion house founded to uplift Filipina artisans out of poverty, and Bayani Brew, an organic tea beverage company that supports small-scale farmers.
In recent years, microfinancing solutions have gained popularity and have not only been driving impact investments but the wider VC investment sector as well. This trend is likely an outcome of the COVID-19 pandemic, which accelerated the widespread adoption of digital payment solutions in the country. As a result, companies providing microfinancing solutions in the impact space have become prevalent. Companies such as Plentina, an online lending app that makes credit more accessible to underserved segments of society, and OnePuhunan, a startup that provides financial access to low-income individuals and small businesses.
Conversations with local stakeholders have indicated that solutions directly addressing issues in the blue and green economy are emerging to play a more significant role in the ecosystem especially with the help of government support. In 2022, the EPRA[7] was implemented which holds large enterprises responsible for the plastic waste they produce. Under this policy, businesses are required to offset 80% of their plastic footprint by 2028, up from 40% currently. This has led to the rise of several startups offering solutions to help local businesses comply with these regulations and transition towards a more circular economy. Notable solutions include plastic credits, material innovations, and waste management and recycling initiatives from startups such as Plastic Credit Exchange (PCX), a marketplace for traceable plastic waste recovery; RippleX, which operates refilling stations for daily essentials like dishwashing liquid, detergent, soap, and shampoo, thereby reducing the need for plastic sachets; Rezbin, a plastic recovery technology company; and Humble, a startup focused on bringing IT equipment back into circularity.
Additionally, the Philippine government has also shown support for the nation’s transition to renewable energy as well as the development of the agriculture sector which holds a significant role in the economic development of the country in the years to come.[8] These efforts have been largely driven by investments from development finance institutions, such as the Asian Development Bank (ADB), rather than private impact investors, meaning that the investment opportunities have usually not been in the form of start-ups or social enterprises. However, for these government support initiatives to lead to a more vibrant impact ecosystem, local challenges must be addressed to attract private impact investors.
Overcoming the Barriers
Our research also reveals significant challenges that still hinder the growth of the impact investing sector in the Philippines. Chief among these are the difficulties of doing business in the country, which has not only deterred investments in the sector but also discouraged potential entrepreneurs from launching. Additionally, there is a lack of support infrastructure for startups outside of Manila since most key players are headquartered in the capital city. Entrepreneurs trying new business models outside the capital have very limited access to the exposure and support available in the capital city.
We also learned that entrepreneurs often lack clarity about the type of capital financing they need and are unaware of the various types of capital available to them from investors. Conversely, investors face a mismatch in expectations, as many startups in this space are early-stage and thus high-risk, requiring patient capital to get them to the growth stage.
Impact investing remains relatively unknown in the country. The absence of notable success stories for impact-driven startups is a major contribution to the challenge. Although the Philippines has seen successful social enterprises in recent decades, which have attracted investment, the impact investing sector is still young and evolving.
While there are only a few players in the country providing impact capital to impact entrepreneurs, we believe that there exists an emerging market with potential. The collaborative efforts of stakeholders—entrepreneurs, investors, policymakers, and philanthropists—are essential in nurturing innovation and driving sustainable development. In this blend of profit and purpose, impact capital emerges as the driving force behind change.
At Mana Impact, we are committed to supporting impact investors in exploring investments in the region. We are particularly interested in learning how we could contribute to the growth story of the Philippines. We are constantly in search of opportunities to support impact-driven, early-stage, and small- to medium-sized startups to achieve their full potential.
Footnotes
[1] The coral triangle includes the waters of Indonesia, Malaysia, Philippines, Papua New Guinea, Timor Leste and Solomon Island.
[2] The amendment aims to prevent, deter, and eliminate illegal, unreported, and unregulated fishing in the Philippines.
[3] Amendment to R.A. 9003, otherwise known as the Ecological Solid Waste Management Act of 2000, to institutionalize the extended producer responsibility on plastic packaging waste.
[4] SMARTSeas PH Project’s is a project between the PH government and UNDP, whose objective is to strengthen conservation, protection, and management of key marine biodiversity areas in the country.
[5] The BCAP aims to strengthen coastal ecosystems, boost blue carbon conservation, and mitigate climate change.
[6] Source: Impact Investing in Southeast Asia 2020-2022 report by Investing in Women Initiative.
[7] The law holds companies accountable for the plastic packaging they produce throughout the lifecycle of their products. EPR is a regulatory system that requires producers to be responsible for the waste their products generate. Producer responsibility can be addressed through financial payments or by carrying out plastic waste collections.
[8] The government targets renewable energy generation mix of 35% in 2030, and 50% by 2040 from 22% in 2022. Coconut Farmer & Industry Development Plan of 2022 - US$1.3bn fund for coconut industry modernization; ADB Policy-based development financing of 2023 – US$500mn loan to expand Philippine agriculture.
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